Wednesday, February 6, 2013

Sixth Circuit Reverses Sentence of Engineers' Convicted of Trade Secrets Theft

In December of 2011, Clark Roberts and Sean Howley, two engineers at Wyko Tire Technology, were convicted by a jury for stealing trade secrets, a crime under the federal Economic Espionage Act (EEA). The trade secrets related to Goodyear's tire-assembly machine technology. Roberts and Howley had access to this technology because Wyko was a supplier to Goodyear. Wyko had been approached by a Chinese company, HaoHua, to supply a number of tire-building parts and stood to benefit greatly from this supply contract.

There was a problem, however. Wyko wasn't quite sure how to do the job, and its draft designs had serious problems. So when Goodyear asked Wyko to repair some tire-assembly machines, Roberts and Howley saw an opportunity and took photographs of some key devices used on the Goodyear machines. These photos (presumably) were going to help Wyko close its knowledge deficit and avoid potential penalties under its supply agreement with HaoHua. Wyko uncovered the improper activity, alerted Goodyear, and Roberts and Howley eventually were convicted.

Earlier this week, the Sixth Circuit Court of Appeals upheld the EEA convictions, but found that the sentences imposed were procedurally improper. At trial, federal prosecutors had pushed for the engineers to receive at least ten months in prison. But some of the testimony backfired, as Goodyear's expert witness arguably did not document his economic loss calculations that well. Federal law allows a court to consider a victim's economic loss as a result of the crime, which makes sense in a crime that is essentially financial. In this case, the loss would have been the impact on the value of Goodyear's trade secrets.

As a result of the testimony and mitigating evidence presented by the defendants, the district court sentenced Roberts and Howley to home confinement, community service, and probation.

The Sixth Circuit found that wasn't correct. It held the district court did not account for a "reasonable estimate" of Goodyear's loss. In particular, the court noted that even the low-end estimates offered by Goodyear yielded a sentencing guideline within the range of 3 to 4 years in prison. Also, the district court's finding of, essentially, "no loss" was inconsistent with the element of the crime that the stolen trade secret have some independent economic value from its secrecy. As a result, the district court needed to provide an estimate of economic loss and the reasons for its findings.

The case is significant, in my mind, for three reasons. First, Judge Sutton's analysis affirming the EEA convictions gives a nice summary of security measures that companies often undertake when dealing with vendors who have access to confidential information. Second, the case itself (apart from the issues on appeal) demonstrates the increasing specter of criminal liability in cases of trade secrets theft - particularly when the theft is intended to benefit companies outside the United States. And third, the decision shows that district court's have wide latitude, and an independent obligation, to assess a victim's economic loss even if the victim itself presents an estimate that might not be admissible under the rules of evidence.

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